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Not too long ago, the rage was all about loans being offered by various lenders with a minimum of a 1% down payment coming from the borrower. Freddie Mac was the secondary source purchasing these loans.
This was done to increase homeownership by reducing the amount needed upfront for a buyer to purchase and finance a home. It sounded like a good idea at the time.
But for some reason(s) Freddie has decided to pull the plug. Why?
Seems a little too soon to determine if the program resulted in increased defaults as these loans haven’t had the time to work their way through the system.
Could it be that to finance the lender credit of the additional 2% down needed under the program, lenders jacked up their rates and/or fees? In doing so, they made it more difficult for the borrower to qualify by effectively financing the down payment into the loan.
This could increase the potential for default for those who may have qualified, albeit at a higher DTI, with limited reserves.
Maybe consumers shied away because of the increased monthly cost resulting from a higher loan amount and/or interest rate. Whatever the reasons, Freddie realized this wasn’t a good idea.
Viable loan programs are one way to help to increase homeownership, but only when consumers can afford the cost of purchasing and maintaining a home.
Any program that only helps to get someone into a home, without ensuring their ability to afford the payments plus upkeep on that home, is a recipe for disaster. Maybe, Freddie saw the light.
It could be the program was just a flop and not that many home buyers were interested. Freddie didn’t provide much detail in the Bulletin announcing this change.
So, lenders will have to carry on trying to qualify homebuyers with a minimum of 3% down for the Freddie Home Possible loan program.
However, if you need to finance a loan with less of a down payment, you might consider a VA loan (for a vet) or take a look at the USDA Rural Development Program.
